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More disturbing numbers for telcos

Two separate sources this week are offering up more analysis showing the telcos are falling behind the cable companies in the broadband and video battle.

Information Gatekeepers, an analyst firm that once predicted the telcos would overtake cable in broadband penetration, this week issued its High-Speed Access Report for the first quarter of 2008, showing cable is outperforming its forecast and the telcos are under-performing what IGI had forecast in 2006. The latest report is in keeping with what IGI began saying in 2007, when it warned that both AT&T and Verizon were falling behind in implementing high-speed access plans, and thus their data revenues would not make up for lost wireline access income.

Also this week, Craig Moffett, vice president and senior analyst at Sanford C. Bernstein & Co., noted that Dish Networks added a net total of 35,000 customers in the first quarter, a decline of 89% from the first quarter of last year. That can’t be good news for AT&T, which sells Dish as part of its “advanced” TV service in areas where its U-verse IPTV offering is unavailable. Beginning in the second quarter, Dish will be AT&T’s only satellite video partner, as the former BellSouth territory moves away from that company’s previous deal with DirecTV and onto Dish.

The BellSouth move might be the only thing that keeps Dish from a net loss of customers in the traditionally slow second quarter, Moffett noted. Dish could be the next Sprint, losing customers at a steady pace, he said.

“Dish would appear to be between a rock and a hard place,” Moffett wrote. “At the low end, Dish's ‘everyday low price’ value proposition suddenly appears vulnerable against cable's economically advantaged triple play. At the high end, Dish has been outflanked by DirecTV's ‘best HDTV’ positioning. Churn is eroding the base.”

Moffett’s analysis of Dish financial results showed the company is spending heavily – 95.2% of its customer acquisition costs – on churn replacement, not growth. With its per-subscriber acquisition costs increasing 6.9% to $709, Dish faced a 24% increase in the cost of churn replacement, Moffett said.

AT&T and Verizon are also, of course, competitors to satellite companies such as Dish. But within AT&T’s local footprint, Dish is the more common video option, given the relatively small footprint for U-verse to date.

Last week, Moffett sang the praises of Cablevision, a cable company that would seem to be in the crosshairs of Verizon’s FiOS service but is not just surviving but thriving. Its cable operations growth was 10.6%, with higher margins and lower capital intensity. Moffett had predicted a loss of 13,000 basic video subscribers, but Cablevision posted a 2000 net gain.

“With video penetration already the highest in the country (68%), and with Verizon now offering FiOS in nearly 30% of Cablevision's footprint, the notion that Cablevision continues to eke out positive subscriber growth – quarter after quarter – is extraordinary,” Moffett wrote. Cablevision now has broadband in 50% of homes passed, adding 61,000 customers in the first quarter, and sells voice to 36% of homes passed, well above cable industry marks.